How one piece of tech made online payments simple

Aug 19, 2018: Rarely do you see a technology developed in India spawning a whole ecosystem. But that’s what has happened with the Unified Payments Interface (UPI) digital platform, launched by the National Payments Corporation of India in 2016. The ease and speed of money transfer it enables through mobile phones has created a bouquet of opportunities, which many entrepreneurs and startups have exploited, and which in turn has led to an explosion in growth of UPI-based payments.

By streamlining money transfers and lowering the cost of each transaction, UPI has created an ecosystem that levels the playing field for startups competing with big banks

One of the biggest beneficiaries has been payment ventures. Payment banks like Paytm, small finance banks like Equitas and wallets like Mobikwik and Oxigen have seen UPI transactions surge. One of UPI’s key breakthroughs for these startups has been its interoperable framework. A single application is enough to access different bank accounts. And you don’t need difficult-to-remember and difficult-to-access bank account numbers and IFSC codes of bank branches to make UPI transactions, unlike in the case of NEFT and RTGS that have been the traditionally dominant modes of electronic money transfers.

“UPI has helped us gain a more broad-based user base as it’s faster, simpler and smoother for transactions. Also, the stickiness is higher among UPI customers, compared to other modes of payment,” says Sangram Singh, CEO of Freecharge, a wallet venture that was acquired by Axis Bank last year. UPI transactions are now 30% of Freecharge’s total transactions.

Large banks too acknowledge that their partnerships with UPI enabling ventures have helped them grow their businesses. B Madhivanan, chief technology and digital officer at ICICI Bank, which has partnered with about 15 startups, said that of the 13 million users of its mobile payment applications as of March 31, 2018, only about 35% were ICICI Bank customers. In other words, the large majority are non-ICICI Bank users, something that has been made possible by the interoperability of the UPI platform.

Investors have recognised this promise of UPI, and it’s a major reason why investments into payments startups have surged. It touched $1.6 billion in 2017-18, from just $197.5 million the year before, according to data from research firm Tracxn.

But payment ventures are only a part of the UPI story, even if a big part of it. Others include those who provide point-of-sale (PoS) terminals and payment gateway services that can enable merchants to use UPI — such as Bijlipay, Innoviti, RazorPay, and Net-Suite; those that help to get merchants onto the platform through technology solutions — such as Ezetap, Mswipe, JusPay, and Atom Technologies; and those who build UPI-enabled mobile apps — such as Ndot, Mobibiz, and Goodwork Labs.

UPI’s simplicity has dramatically reduced costs, which gives startups a more level playing field. Where a payment gateway earlier needed to build relationships with every bank, now a single relationship with UPI is all that’s required for the gateway to enable its customers to connect to any bank.

Mandar Agashe, founder of Sarvatra, which counts ICICI Bank, Paytm, cooperative banks and regional rural banks among its customers, notes that earlier you could make payments only from your bank account, but with UPI, any bank’s mobile app can be used by any bank customer, leading to customer independence and mobility. “We have had an unbelievable 100x growth in UPI in the last year,” he says.

Hemant Gala, head of payments, banking and financial services at Flipkart’s PhonePe, notes that payments earlier had to be made at individual merchant websites or apps, but with UPI, integration and interoperability has been rapid. “From our PhonePe app you can now book hotel rooms using Goibibo, bus tickets on RedBus, pay for cab rides, buy on Zomato, Flipkart, Jabong, recharge mobiles, pay DTH bills, electricity bills, municipal payments and credit card dues,” he says. That level of convenience is bringing in more users and further expanding the ecosystem. It’s now reaching tier-2 and tier-3 towns.

A new version of UPI is expected this month, which could widen opportunities for startups. UPI 2.0 is expected to contain features such as amount blocking (ensuring sufficient funds in the bank before availing a service), which will help hotel aggregators. “We expect amount blocking to be a game changer, just as cash on delivery was for ecommerce players,” says Vishwas Patel, chairman of the Payments Council of India, an apex body representing companies in payments and settlement systems.

I am happy with the pace of work (in developing the UPI solution for ICICI Bank). It is also very encouraging the way you are tracking the progress. I am more confident that we can meet the deadline successfully.